Sales at Wal-Mart, Though Still Rising, Suggest Wary Shoppers

A Walmart in Durham, N.C. After reporting a 2.2 percent rise in United States sales, executives say shoppers are still cautious.Credit
Christine T. Nguyen/THE HERALD-SUN, via Associated Press

Consumers in the United States still seem to be holding their breath.

Wal-Mart Stores, the nation’s largest retailer by far, reported quarterly results on Thursday that its executives said reflected a strained consumer, adding a sober note to more upbeat earnings reports from other retailers this week.

“Consumers aren’t panicked about the economy, but they are worried,” Craig Johnson, president of Customer Growth Partners, wrote in a research note. Sales growth for top retailers slowed to 3.4 percent in the second quarter of 2012 compared with a year ago, according to Mr. Johnson’s analysis. In the first quarter, sales rose 6.2 percent compared with a year earlier. (Thirty of the 40 major retailers he tracks have reported quarterly results so far.) Consumers “are still buying, but they’re buying less and they’re buying closer to need,” he wrote.

Wal-Mart’s results suggested that shoppers in the United States — particularly low- and middle-income shoppers — remained stretched thin and wary about splurging. Sales at the company’s stores open at least a year rose 2.2 percent in the United States, which was its fourth consecutive quarter of same-store sales growth domestically. However, executives said that did not mean the American shopper was feeling especially cheery.

“I don’t think the economy’s helping us,” Charles M. Holley Jr., Wal-Mart’s chief financial officer, said in a call with reporters. Customers are still very concerned about employment, gas prices and food inflation, he said. “If anything, our consumer’s probably being a little more stretched because of gas prices.”

The company’s overall revenue increased 4.5 percent, to $114.3 billion, for Wal-Mart’s second quarter, which ended July 27. Analysts had expected higher sales, of $115.8 billion, according to Bloomberg data, and Wal-Mart said currency fluctuations were largely to blame for the difference. Profit increased to $4.02 billion, or $1.18 a share, from the second quarter of 2011, a penny above what analysts were expecting. The company increased its earnings-per-share guidance for the full year to $4.83 to $4.93, up from the $4.72 to $4.92 it had issued earlier.

Wal-Mart said that currency fluctuations lowered net sales by $2.2 billion. Without currency fluctuations, net sales, excluding membership and other revenue, would have been $115.7 billion, about in line with analysts’ estimates. Shares in the company fell about 3 percent on Thursday.

Sears Holdings, which also reported quarterly earnings on Thursday, cited several reasons for its big drop in same-store sales, which declined 2.9 percent at Sears stores and 4.7 percent at Kmart stores. The company said that was because of lower volume in its clearance sales and less demand for electronics and lawn and garden items.

Revenue at Sears Holdings declined 6.6 percent to $9.5 billion for the quarter. The company’s loss of $132 million, or $1.25 a share, was improved from its loss of $146 million a year ago, thanks to cost-cutting.

Not all of the signs are dour. Quarterly reports from Target, Macy’s, Home Depot and other large retailers this week, and a government report showing strength in consumer spending in July, painted a more optimistic picture.

Target posted a same-store sales increase of 3.1 percent and said that shoppers were starting to buy discretionary items again, though it said staples were still very popular. “We believe our guests will continue to be both cautious and resilient, shopping and spending at Target in disciplined ways,” the company’s chief executive, Gregg Steinhafel, told analysts.

At Home Depot, which reported a 2.6 percent rise in same-store sales in the United States, consumers were pursuing small projects around the house, and executives said the housing market appeared to be stabilizing. Macy’s reported a 3 percent increase in revenue.

Strong results from both Nordstrom and Saks this week suggested that well-heeled shoppers were feeling confident. And Commerce Department data for July, released this week, showed an increase of 0.8 percent in retail sales, which exceeded analyst expectations and followed three months of negative figures.

In a reminder of just how giant Wal-Mart is, William S. Simon, chief executive of Walmart U.S., said in prepared remarks that the United States division’s 0.4 percent increase in comparable-store traffic from a year ago represented 80,000 additional customers each day of the 13-week quarter.

Still, Wal-Mart’s results suggested that midrange and low-end American consumers were still hesitant about spending money. Customers are responding to marketing that emphasizes cheap prices, Mr. Simon said, and executives said customers here were still living paycheck to paycheck.

Internationally, Wal-Mart’s sales continued to grow at a quick clip, increasing 6.4 percent to $32 billion. That was a slower increase than usual — in the first quarter, for instance, international sales rose 15 percent. And for the first time internationally, Wal-Mart executives pointed to a “paycheck cycle” — when customers spend little as their paychecks run out and restock on basics once a new check arrives.

The company is in the midst of an investigation involving its Mexican subsidiary and, possibly, other foreign units. In April, The New York Times reported that executives at the company’s headquarters in Bentonville, Ark., had received credible evidence about bribery allegations in 2005 and 2006 in Mexico, but shut down an internal investigation into the issue. Bribery of foreign officials is illegal under the Foreign Corrupt Practices Act.

The Justice Department and the Securities and Exchange Commission have opened investigations into the matter. Wal-Mart is conducting its own internal investigation into the Mexico allegations, and the company suggested in May that it was examining potential misconduct in other foreign subsidiaries.

This week, two congressmen sent a letter to Michael T. Duke, Wal-Mart’s chief executive, reiterating a request for a meeting. The congressmen said that they had obtained internal documents, “including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to ‘questionable financial behavior’ including tax evasion and money laundering in Mexico.”

Mr. Holley said that Wal-Mart was not aware of any investigations regarding tax evasion or money laundering in Mexico. Company representatives have briefed Congressional staff members twice, he said.

The company spent $34 million in the quarter on expenses related to outside advisers on issues related to the Foreign Corrupt Practices Act, like the law firms it has hired to investigate the matter, and said it expected those expenses to continue throughout the year.

Correction: August 16, 2012

An earlier version of this article published online misidentified the firm headed by Craig Johnson, who commented on consumer behavior. It is Customer Growth Partners, not Consumer Growth Partners.

A version of this article appears in print on August 17, 2012, on page B3 of the New York edition with the headline: Sales at Wal-Mart, Though Still Rising, Suggest Wary Shoppers. Order Reprints|Today's Paper|Subscribe